Background

The working group has preliminarily identified several services which need to be unbundled by 1/1/98 in order to accomplish the Commission's goal of introducing competition and customer choice in the provision of generation services. These services have been identified as "track 1" issues, designating that unbundling of these services is critical to implementation of industry restructuring by 1/1/98. Several other issues have been identified for consideration for unbundling, but consensus has not yet been reached on whether they are critical to the implementation of the Commission's Policy Decision. A preliminary listing of the issues are:

All parties to the working group were asked to develop position papers for discussion at the 5/29 working group meeting on the following issues:

1) For track 1 issues, the position paper should identify the costing methodology that the party proposes;

2) For track 2 issues, the position paper should (1) state whether we have identified the correct issues, (2) propose the appropriate costing methodologies for each unbundling item, and (3) identify what this group should accomplish by 1/1/98.

Track 1 Issues

Edison believes the task assigned to this working group is to unbundle rates in order to implement the Commission's Policy Decision establishing competition in the generation of electricity and customer choice of generation supplier beginning on 1/1/98. The Road Map Decision sets a date of 6/30/97 as the deadline for resolution of these issues. Since time and resources will be severely constrained over the next thirteen months, this working group's efforts must be focused on what needs to be done to meet this deadline. Other issues can be addressed in future rate proceedings as necessary. Therefore, Edison feels very strongly that the listing of track 1 issues should be as short as possible and work on track 2 issues should be deferred until direct access is in place.

By 1/1/98, rates for generation capacity and energy and generation ancillary services must be unbundled so that customers can choose to purchase these services through the utility or from third party suppliers. There may be some costs associated with retail services which would not be necessary for direct access customers which also must be unbundled. Rates for transmission services will be established by the Federal Energy Regulatory Commission (FERC) in accordance with its revenue requirement and cost allocation methodologies. Edison proposes to set the distribution revenue requirement equal to its total T&D PBR revenue requirement less the FERC determined transmission revenue requirement. The rate components associated with these services must be unbundled so that customers have sufficient information to elect the utility service option or the direct access option. Certain other costs such as the CTC and costs associated with the provision of Public Goods must be determined for accounting purposes, but will be charged to the customer regardless of whether they purchase electricity from the utility or pursue other options, and therefore do not have to be unbundled for rate purposes.

These costs should be allocated to various rate groups consistent with the Commission's goal of no inter- or intra-class cost shifting. To the extent that reallocation of unbundled transmission and distribution costs to rate groups result in deviations from the existing allocation of such costs, CTC could be established residually so that no change in total revenue allocated to each rate group would result.

We also believe that, just as today, the charges shown on customers' bills do not necessarily have to match the detail of unbundled costs listed in the tariffs. For example, Section I of the Preliminary Statement to Edison's Tariffs lists seven "unbundled" components of the basic residential tariff Schedule D. These are the base rate, ECABF, AER, ERABF, MAABF, CARES, and PUCRF. Each of these are listed as separate billing factors for accounting purposes, but residential bills show only the total energy rate.

Unresolved or Track 2 Issues

The issues identified by the working group as unresolved or track 2 issues raise broad policy questions concerning the introduction of competition into provision of local distribution functions. Some of these issues are likely to be controversial and would go beyond the scope of the Commission's Policy Decision. Resolution of these issues is not necessary to facilitate customer choice of generation provider. Addressing them in this proceeding would divert resources from the resolution of the critical track 1 issues, possibly jeopardizing the 1/1/98 implementation date.

Direct access will not be restricted as a result of the utility continuing to provide these services as part of bundled distribution service. As a general principle, rates for direct access customers should exclude costs avoided by the customer procuring generation services from third party suppliers rather than from the utility. /**/ Since the utility will continue to provide distribution services to all retail customers, it will continue to provide billing, metering, and other customer services, and incur the costs of providing these services. With no avoided distribution or customer related costs to be passed on to direct access customers, it would not be meaningful to unbundle costs of basic utility functions such as billing, metering, customer services and support, and complaint resolution. Customer hookups, line extensions, and power quality are even less relevant to enabling direct access to competitive generation supplies.